The stamp duty holiday created a bloated and false economy in the housing market; it’s time to scrap the policy, not extend it.
Rishi Sunak introduced the policy last summer. The idea was simple enough – add a bit of fuel to the property market and stoke consumer spending by only making buyers cough up stamp duty on the amount paid for a property over £500,000.
The policy was supposed to run until 31 March. But now, the Chancellor is reported to be planning to extend the policy in his budget next week until to the end of June, when Covid restrictions will come to an end. The policy extension could cost the Exchequer £1 billion.
The tax holiday was a ill-thought through when it was implemented back in July, but to spend a further £1bn compounding Britain’s housing crisis feels nothing short of madness.
Such a policy is nothing but the Treasury’s version of pulling a rabbit out of a hat. Predicting the inevitable outcome when it was implemented was not difficult: the already bloated housing market would balloon further, as sellers and estate agents realised people would be willing to part with more cash for a new property, if they didn’t have to pay stamp duty.
And rise, the house prices did. The jump has comfortably wiped out stamp duty savings as people paid tens of thousands of pounds more for property in exchange for feeble tax savings.
Research compiled by Halifax found that for homemovers – note, not first-time buyers – the average price of a property climbed a staggering £57,790 in the six months after the policy was introduced, from £373,537 in June 2020, to £431,327 in December. The average stamp duty saving? A weedy £11,566.
Separate research from Halifax found the average price of a property in Britain was £253,243 in December 2020, up £15,409 from the end of June. The stamp duty saving on a £253,243 house is only worth £2,650.
For first-time buyers, the situation is almost comically bad. First-time buyers already benefited from stamp duty holiday policies, but thanks to the tax break going mainstream, they now face the prospect of having to scrape together larger deposits for properties whose value is artificially inflated, in a market where banks are becoming increasingly selective about who they lend money to.
It’s worth remembering, once again, first-time buyers are typically young people who have seen disproportionate job losses and sacrificed a year of their lives to protect the more vulnerable.
The extension has even further ramifications, any increased value in a property is artificial. As the end of the scheme draws nigh, real estate bodies have predictably warned of a “cliff edge” putting hundreds of thousands of sales at risk.
Extending the policy doesn’t mean the cliff-edge isn’t there, it just means we’re suspended mid-air, with our eyes closed, pretending, or perhaps hoping, something will whisk us away just in time to stop us from falling. A cliff is a cliff, and whether that cliff edge is in March or June, the housing market will likely falter and stall as a result of the holiday coming to an end.
Property prices will fall when the stamp duty bonanza is over, revealing the false economy brought about by the policy, or they won’t, and the government will have compounded the housing crisis, driving up the price of already overpriced property in Britain.
The housing market never needed a helping hand from the government. The government would be better off putting the £1 billion towards a sector hit particularly hard by the pandemic, or, staying with housing, towards the cladding crisis, where thousands of homeowners have been saddled with extortionate bills through no fault of their own.